COVID19 – Impact on Antitrust and consumer protection

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The COVID-19 outbreak is impacting the enforcement of antitrust and consumer protection rules in Italy and across the EU. Most affected rules range from those on State aid to control of concentrations, and those regarding anticompetitive agreements, abuse of dominance and unfair commercial practices.

The impact of the epidemic emergency on the enforcement of these rules is twofold and cuts both ways. On the one hand, the state of emergency may create conditions for firms to qualify for exemptions from antitrust rules in individual cases where conducts are objectively indispensable to attain a goal of general interest. On the other, it is spurring aggressive enforcement of the rules by competition authorities to safeguard distressed consumers and businesses from abusive, discriminatory or unfair conducts of undertakings, including impairment of public procurement, particularly with respect to essential goods and services.

Individual exemptions for State aid and indispensable cooperation between undertakings  

In Italy, as well as in the EU and other jurisdictions, antitrust rules provide for “justifications” or “exemptions” from the prohibition on restrictive conducts or public measures to the extent they are objectively necessary to increase consumer welfare or achieve an overriding public goal or safeguard fundamental rights. This may mean, for instance, protecting people’s health or guaranteeing the continuity of the supply chain of strategic goods or services, sustaining employment levels in troubled economic sectors or geographic areas or improving manufacturing or distribution techniques to the benefit of consumers. The mechanisms and conditions to qualify for an exemption differ depending on the conduct or measure concerned and the applicable antitrust rule. The common rationale for antitrust exemptions is in general to permit restrictive conducts or measures if the likely benefits to competition and consumers outweigh, overall, the likely negative effects.

Save for those categories of conducts that fall under block-exemption regulations or below de minimis thresholds, assessing whether a measure or conduct meets the conditions for exemption requires a case-by-case analysis of all the circumstances of the economic and legal context to which it belongs. Nonetheless, the health emergency characterizing a pandemic creates general conditions of necessity and urgency which, indeed, may make qualification for such exemptions more likely in certain circumstances and for essential goods and services.

State aid is the field of competition law where exemptions may have a more generalized application. State aid is in principle prohibited by Article 107 TFEU, save for when it is necessary to sustain depressed or strategic economic or geographic sectors and preserve a minimum level of employment. In a recent speech addressing the Italian situation, the President of the European Commission (EC) reassured the public that the rules on State aid will be relaxed to allow public financing to support Italian industry and businesses, and particularly SME, affected by the epidemic outbreak. Further, on March 13 competition chief Margrethe Vestager announced the EC is prepared to provide exemptions from State aid rules for the EU industries and businesses and has set up a dedicated hotline for governments considering extending aid in their respective countries. She added that the nature and scale of the crisis in Italy allows the use of Article 107(3)(b) TFEU, which enables the EC to approve national support measures “to remedy a serious disturbance to the economy”. The provision, which was the same one used during the financial crisis, would also serve as a legal basis «to escape the ‘one time last time principle’, which means that also businesses that have had support within the last ten years can be eligible for support if need be within this special situation», she said. While writing, Member States are being consulted by the EC on a possible new framework to ensure that national support measures and aid schemes having certain characteristics can flow swiftly to distressed businesses because of the virus. Again, the EC is relying on the experience made during the financial crisis to implement the new framework quickly and effectively. However, unless new rules are approved any new public aid will continue to be subject to individual assessment and mandatory prior authorization from the EC, unless already block exempted under existing EU State aid rules.

Examples: on March 12 the EC cleared a State aid measure resulting from the outbreak. It approved a support scheme of EUR 12 million from Denmark to compensate event organizers for damages suffered due to the cancellation of large events. The Commission applied Article 107(2)(b) TFEU, which addresses damages directly caused by natural disasters or similar exceptional occurrences.  This was the first State aid measure notified to the EC in relation to COVID-19 and was approved within 24 hours of the notification being received. Upcoming measures across the EU may regard airlines, transports, tourism, entertainment and events, agriculture and fishery and SME in genal. In this context, on March 17 the Italian Government issued law decree “Cura Italia” with urgent support measures to the economy and people affected by the outbreak. Notably, among the many support measures to all affected sectors, Article 79 of the decree provides for the incorporation and funding (for an initial amount of EUR 500 million) of a new Italian state-owned company with the objective and powers to manage the distressed assets of Alitalia during the emergency, and until sale of its assets in the pending auction proceedings.

Control of concentrations may be suspended or significantly re-organized. The EC has requested parties of pending transactions subject to notification to possibly suspend filings until new notice because of the significant difficulties it may face in carrying out the proceedings (here is the official press release). Notably, the EC is not lifting the obligation to notify mergers and request authorization – rather, it is requesting parties of pending mergers to delay their projects. The EC affirms it will temporarily accept all submissions in digital format, either electronically by email to the merger registry or through the eTrustEx system, while the delivery of paper originals will be arranged at a later moment. However, it has started suspending the running of terms to decide on notified transactions (so called stop-of-the-clock) and has not ruled out ad hoc legislative changes to adjust the rules of procedure to this special situation.

The Italian Competition Authority (AGCM or ICA) may perhaps decide not to suspend the control of concentration altogether, relying on both the limited amount of notifiable transactions and the absence of a standstill obligation under the Italian regime. The special situation may nonetheless further accelerate invoked changes to the national merger control system, as for instance: (i) introduction of value-based thresholds (in addition to the existing turnover thresholds) triggering mandatory prior notification of concentrations in digital markets, to prevent so called “killer acquisitions” (i.e. acquisition of innovative yet small-size tech companies by dominant digital players); (ii) revision of the procedure and timing for accepting commitments from the parties of a notified concentration to remove competition concerns. Meanwhile, the ICA may issue one or more notices to clarify and illustrate how practicalities should be adjusted for investigations to be carried out remotely and safely. Nevertheless, it will probably be very complicated to carry out dawn raids and requests for information safely and effectively in the health emergency and this may represent a serious obstacle to investigate more problematic transactions.

Examples: to address the situation, the EC and the ICA may either: (i) temporarily suspend or delay notifications and terms for certain large or more complicated transactions by stop-of-the-clock orders, thus preventing them to complete without breaching merger control requirements and incurring in related sanctions; and/or (ii) introduce legislative changes to temporarily derogate standstill obligations while allowing a stricter ex-post investigation of the transactions, which may be combined with the ability to impose ex-post remedies. The existing merger control regime in Italy is already in line with the second route, whilst the EC’s regime would need ad hoc legislative adjustments to that end. On the contrary, while the EC’s regime already entails an automatic standstill obligation, the Italy’s regime does not. As a third route, one cannot rule out that the Italian government will decide to urgently introduce an automatic standstill obligation or assign the ICA interim powers to issue hold-separate orders to merging parties of problematic transactions, considering the difficulty and risks in carrying out investigations in the health emergency.             

Anti-competitive agreements are, in principle, prohibited by Article 101 TFEU (and Article 2 of law 287/90) and enforcement by competition authorities is not going to soften – rather, the opposite will occur. However, according to consolidated EU and national case law, an agreement between undertakings that is strictly necessary and directly related to the implementation of a manifestly pro-competitive operation is deemed not restrictive of competition in the first place and thus falls outside of the application of Article 101 TFEU altogether. And even if that strict condition is not satisfied, Article 101(3) of the TFEU (reflected in Article 4 of law 287/90) provides an individual exemption from the prohibition for agreements that satisfy a set of cumulative conditions, including that consumers enjoy a fair share of the resulting benefits. These conditions are usually hard to meet but might be more easily satisfied in an emergency scenario characterized by serious restriction in movement of people and goods, possible shortages of human labor and supplies and extraordinary demand for certain goods and services.

Examples: The need to ensure home delivery of indispensable goods and services (food, pharmaceuticals, healthcare etc.) to anyone – particularly vulnerable categories – may make it indispensable for delivery service providers to cooperate to ensure continuity or more efficient covering of the service across a certain territory and time. Reportedly, four large supermarket chains in UK consulted with the government about a possible temporary exemption from competition rules in order to allow them to work together on deliveries in local areas if a shop were forced to close down due to the virus, or to liaise to ensure deliveries to vulnerable customers. Furthermore, industry or sector associations may want to plan possible reactions to extreme scenarios requiring cooperation between members, either nationally or locally, in order to sustain a minimum level of service across Italy.

Addressing these objectives may require competitors or associations of competitors to exchange sensitive commercial information and coordinate their behavior on the market, e.g. by using common platforms, assigning orders or group of customers. Parties to such agreements should assess for themselves whether the conditions for an individual exemption are met. With a view to stimulate transparency and compliance in this special situation, the ICA may perhaps consider resuming application of Article 4 of law 287/90 to accept motivated requests for approval by parties to agreements having potentially problematic effects within local markets in Italy. Likewise, the European Commission may consider using Article 10 of Regulation N. 1/2003 (implementing Article 101 TFEU) to accept requests of inapplicability of the prohibition of Article 101 to cooperative projects having EU-wide effects.

More aggressive enforcement of consumer protection and competition rules     

The Consumer Protection Code (Legislative Decree N. 206/2005), which implements in Italy the EC directives on consumer rights, assigns the ICA wide powers to pursue unfair and misleading commercial conducts on the part of undertakings toward consumers, such as speculating on prices of indispensable goods or by discriminating customers. The urgent government measures introduced in Italy to respond to the emergency have strengthen the scope of intervention of the ICA to counter price gauging. Also, if a dominant supplier carries out exploitative or discriminating conducts to the prejudice of consumers, the ICA may, theoretically, pursue such conducts as an abuse under Article 102 TFEU (or 3 law 287/90). Further, human or algorithmic “collusion” between traditional or digital providers or distributors in connection with essential goods and services, which may cause price gauging or discriminatory conducts, may be investigated as anti-competitive agreements under Article 101 TFEU (or 2 law 287/90) or even as a related criminal offence (see here on the intersection between criminal law and cartels in Italy).

Examples: On February 27th the ICA has opened two separate investigations against online platforms Amazon and eBay about the marketing of hand sanitizers and disposable respiratory protection masks in connection with the virus outbreak (press release). The investigations were prompted by several complaints filed by consumers in relation with vendors’ allegations of quality or effectiveness of the products in countering the virus, or with unjustified and significant increase in prices. Interestingly, the investigation may point to the use and design of pricing algorithms. With regards to consumer protection, the ICA states it is focusing attention and resources on the e-commerce environment, given the limited operation of traditional businesses these times. Further, on March 17 the ICA has issues an interim urgent measure to obscure a website allegedly selling online to the public an anti-HIV medicine at around EUR 600 per box and claiming it was the only effective medicine against coronavirus, on the grounds that at a first look it presented the characteristics of a manifestly misleading and aggressive commercial practice (press release).

Article filed under: Regulatory, COVID-19
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